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Tesla: an electrifying ride?

Founded in Silicon Valley in 2003 with the aim of commercialising electric vehicles, Tesla is fast rising through the automotive ranks.

The company is headed by the impressive business magnate, inventor and investor Elon Musk. He is also responsible for PayPal and SpaceX, a technology company with a focus on advancing the state of rocket technology, which gives some idea of Tesla’s innovative, exciting approach.

The cars themselves boast some remarkable statistics. Their most popular car, the Model S can do 0-60mph in 4.2 seconds (faster than a BMW M5), fits 5 + 2 passengers with luggage, and can travel for 245 miles on one battery.

But the story of Tesla’s share price is even more remarkable. Since its IPO back in mid-2010, the value of the stock has risen more than 1200%: rising from $17 to its current level of around $227. This performance has occurred despite the fact that Tesla posted profits for the first time in its ten year history in 2013, and sold just 22,500 cars for the same year. Clearly, Tesla’s stock price is based on future predicted value. The question investors are asking is whether Tesla stock is running on fumes, or an investment to hold for the long term?

The key driver pushing Tesla forward is the future of the automotive industry. The electric car is not just a product, it’s a problem solver. Many countries are introducing CO2 average emissions targets, and just last week Chinese officials announced that a mandate starting in 2016 will require 30% of cars to be electric.

If the future is battery powered, Tesla has a head start by a long way. But what about the competition? Most of the major car companies have released their own electric vehicles, but none have been able to replicate Tesla’s stock performance in the past few years. Another wild card in the pack is Musk, who in a bold move last month took the game up a notch when all Tesla’s patents were made public to encourage competition.

Tesla is the first one to the post, but with the Model S starting at around $58,000, the car is not ready for the mass market. Musk’s plan for 2020 is to sell 500,000 cars which means lower prices must be achieved. Learn about spread betting at IG’s UK website.

The biggest customer requirement for an electric car is range and for this the battery is the key technology. However, battery technology is still expensive and inefficient. Tesla seem to already have a plan up their sleeve and are building a Gigafactory that will allow them to achieve economies of scale, bringing the price down of lithium batteries and increasing production helping them towards their vision of the future.

We ought to hear what the critics say too: many are convinced that Tesla is a bubble about to pop, driven by market emotion and hype. There is no doubt that the rocketing price is something to be wary of, with many claiming the stock is comparable with the South Sea Trading Company and the 1637 Dutch Tulip fevers. However, people said similar things about Apple and Microsoft in their earlier days of trading. Fundamentally, a major technological shift is happening in the automotive industry and Tesla’s biggest challenge is holding off the competition to maintain its lead. Management have already shown the desire to innovate products, grow a company and disrupt the industry and one can place a safe bet on them becoming one of the largest players in the market and not just a niche technology firm. Steve Jobs’ creation grew 100,000% from 2002 to 2014, whether Tesla can mimic this is yet to be decided.

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